As we move into the end of the First Quarter of 2026, ACG "Smart Parts" will be focusing on a topic that has been around for decades. Every one of us strives to achieve our dealership goals and guidelines as well as what goals and guidelines dictated and set by our industry.
That being said, we thought that it would only be appropriate to focus on these Parts Goals & Guidelines right after the National Automobile Dealer Association, (NADA) had its Annual Convention early in February of this year in Las Vegas, NV.
NADA has been out there for decades dating back to the early 1900's bringing Automotive Dealers together to share ideas and develop a "standard" of goals and guidelines for all dealership departments.
By breaking down dealerships into individual groups by like franchises, performance levels, and demographics, they have been able to bring dealers together to share best ideas and best "practices".
These "20 Group Meetings" go on throughout each year for all dealership departments where information is shared and listed from below average, average and above average performance listed from all Key Performance Indicators, (KPI's). From there, they developed their Dealer Composite that ranks each dealer in these KPI areas top to bottom.
From there, dealers share their ideas on how they achieved above average performance, or perhaps how to achieve higher results if the results are less than desired. This information gathering and sharing creates a bond between group members and an overall goal of helping everyone achieve the overall "Group Goals".
Once a year, NADA and other like groups have their National Convention where all come together to see the latest products, services and ideas out there from vendors throughout our industry. It's also a time for dealers to come together on a national platform to celebrate and enjoy this years' venue and get away from the daily grind.
Having been fortunate to attend this event several times and even present at this event, I've also found that preparing to attend this event, (if one is fortunate) is key to getting the most out of it.
It's easy to get caught up in the "pomp & circumstance", but I believe we all have to prepare and have a plan when we attend. The overall excitement can be overwhelming, but we have to know what we want to learn, what we will take away and most important, what we will do when we get back to our dealerships.
To me, we have to go back and ask ourselves why we are there and why we are involved in these groups in the first place. The information gathered from all these dealers is compiled, analyzed and compared to come up with our "Industry Standards" in all dealership departments and that's what it's really about.
Now it's time to break it all down from the standpoint of the Parts Department and what these "Industry Standards" represent and what "Guidelines" have been set. They also have to be universal for all dealer franchises and most important, they have to be SMART.
They have to be Specific, Measurable, Attainable, Relevant and Time Focused for all dealer franchises, size, demographics and capabilities. In the area of the Parts Department, this is no different and we now have to "measure up" to these Industry Guidelines as one united front.
It's time to break down and look at what is expected from ALL ACG "Smart Parts" Managers!
Let's Begin...
Parts Receivables: 50% of Average Monthly Parts Sales
This is a great one to start with because I would guess that the majority of Parts Managers don't even know about this one, let alone know what it means or represents. Many dealers sell parts on Accounts Receivable and wait for their money to be paid at a later date.
The reason this one is so important is that we truly don't sell the part until it's been paid for. We have to follow the money, especially if we have a lot of charge accounts and are into the wholesale or fleet businesses.
If accounts are allowed to go past 30, 60 or even 90 days, we are not making money as it's just "paper money". This Industry Guideline is extremely important to measure our "good accounts" from our "bad accounts" and what a "good customer" really is.
It's also a very easy guideline to follow, measure and to have an idea of how much we should allow on our Accounts Receivable. If we sell $250,000.00 in Parts Sales each month, then our Accounts Receivable should not exceed $125,000.00 per month on average.
Parts Department Absorption Rate: w/Body Shop - 20%, w/o Body Shop - 25%
Another great guideline that measures just how much the Parts Department "absorbs" the dealers' expenses minus Owners Salaries and Variable Expense. We all have to do our part as to how much gross profit we generate to cover the dealership expenses.
This one to me is the true measurement on just how well the Parts Department performs from a gross profit standpoint. Sure, we can talk about Parts Obsolescence, Asset Management, First Time Fill Rates, (which are all important!), but we are in business first to make money.
At the end of the day, how much the Fixed Operations "absorbs" their portion of the dealers' expenses can be the determining factor on the dealers' overall success. Having to rely on Front End Sales can make the dealer profitable, but it's the Fixed Operations that ensures the overall success.
Parts Productivity: Inventory Gross Turns: 8 Annual Turns
This Parts Productivity area often gets confused as Annual Gross Turns will happen no matter if we have a Parts Inventory on the shelf or not. It simply determines what the "desired" Parts Inventory Level, or Amount should be based on a 45 Days Supply, or 1.5 Months.
It represents "sales" going through the Accounting Ledger and not necessarily parts being sold off the shelf. An example would be if I sold $100,000.00 in cost of parts on average each month, it means that we should have $150,000.00 in the Parts Inventory representing a 45 Days Supply of parts in "dollars".
After all, it's possible, but not really conceivable that we can sell $100,000.00 in parts cost of sales each month without really selling a dime off our own shelves. We could technically buy and sell parts without an inventory at all and still have a Gross Turn Rate.
Parts Inventory "True Turns" on the other hand is the only "turn rate" that actually measures how well we are selling our Normal Stocking Parts off the shelf. Although not listed in NADA's Parts Operating & Expense Profiles of 2025, the Overall Industry Guideline for Parts True Turns is 5 Annual Turns.
Parts Productivity: Sales Activity 0 - 6 Months: 85%
This is also a very important guideline as it dictates where our parts sales are coming from. In other words, we should be selling 85% of our parts within that 0 - 6 Month time frame, or "Activity Cycle". It's can also be an indicator of the actual "life span" of parts today.
If 85% of our parts sales are supposed to happen within that 0 - 6 Month Activity Cycle, it can also mean that the Parts Life Cycle is on its way out beyond this point. Hard to believe, but Parts Obsolescence starts at a very early age in its life span.
Parts Productivity: Sales Activity 7 - 12 Months: 10% - 15%
This Sales Activity Cycle of those parts that sell between 7 - 12 Months is what I call my "Stop the Bleeding!" Category. If we can maintain this industry guideline of 10% - 15%, it's much easier to control parts that will eventually become obsolete after 12 months.
If we can let these parts just phase out if the sale happens in this Activity Cycle and not reorder them, preventing obsolescence from happening on parts that haven't sold over 12 months is much easier.
After a part is born and continues through its "life cycle", the chances for "no future sales" grows higher and higher as the months go by. Even though we may sell parts that have been on our shelves for months and years, the overall percentages are staggering.
If a part hasn't sold in 9 months for example, there is two thirds chance that it will never sell again. Even though some manufacturers require us to hold these parts beyond 12 months in order to get full return credit, the bottom line is that we have a 98% chance of no future sales after 12 months.
Part Productivity: Over 12 Months: 5% or Less
This Parts Sales Activity Cycle of over 12 Months goes without saying as the guideline indicates. The trick is to minimize these parts in the Activity Cycle to begin with and deal with them in the previous Sales Activity Cycle of 7 - 12 Months.
This Activity Cycle also gets confused with Parts Obsolescence in general as we are talking about "Sales Activity" and not Parts with No Sales Over 12 Months. All of the Activity Cycles mentioned simply means that last sale happened in these date ranges in months.
Parts Sales Per Employee: $70,000.00 per Month
This is a pretty good guideline to look at when we are trying to determine how many Parts Employees we should have. Keep in mind that even though it gives us an idea of how many total Parts Employees we should have; it does not detail Parts Staffing Metrics.
For example, not all Parts Employees generate parts sales as there are many Parts Employees such as drivers, shipping & receiving staff, or even inventory clerks that do not generate parts sales.
That being said, a Counter Person needs to generate twice as much in sales to offset "nonproductive" Parts Personnel at a 2:1 Sales to Support Ratio. In my opinion, Parts Sales Personnel should produce at least $140,000.00 in parts sales per month.
Parts Gross Per Employee: $28,000.00 per Month
This category kind of "dovetails" to the previous one on Sales per Parts Employee with a little different twist, especially if there are a lot of wholesale sales. To me, this is the one I would use as Sales per Employee can be misleading if we don't generate enough parts gross profit to support the Parts Staff we have.
Parts Sales does indicate how much a Parts Counter or "Sales" Person should be able to handle from a sales standpoint, but it's up to the Parts Manager to keep the gross. This is why maintaining Industry Guidelines on all Parts Gross Categories is so important.
Parts to Labor Ratio: $1.00 Parts to $1.00 Labor, (1:1) - Customer Pay
This is a good guideline to look at once a month to see if we may have pricing issues, or "opportunities" in either Customer Pay Parts or Customer Pay Labor. Although it is not an indicator to measure if we are charging too much for either one, it just means that we may be missing opportunities.
An example would be if our Parts to Labor Ratio is high on the parts side, it may be that our Effective Labor Rate may be low. On the other hand, if the Labor Ratio is higher than the Parts Ratio, we may want to check our Customer Pay Parts Gross Retention, or our Upsell Closing Ratios.
Believe it or not, Service Advisor Pay Plans can also shift our Parts to Labor Ratios if Advisor Commissions lean more towards Labor than Parts. Everyone works their pay plans and if I can make more commission on labor, then I would overhaul a transmission versus a replacement, even though replacing it would be best for the customer.
Customer Pay Parts Pricing Policy: Matrix When Applicable from Cost
Most dealership Parts Managers utilize a Parts Pricing Matrix, but having a Parts Pricing Matrix does not ensure Customer Parts Gross Retention will be at desired levels. We could put the same matrix in five different dealerships with different results.
The key to an "effective" Parts Pricing Matrix is to have the right "recipe" that works for the individual dealer. There are many parts that are sold where the matrix is not applied such as powertrain parts, completive parts, accessories and tires just to name a few.
There are also many dealerships that allow parts pricing overrides and discounts way beyond control which obviously impacts the overall results. Just having a matrix is no guaranty of getting the right Customer Pay Retained Gross Percentages. It takes the right recipe, accountability and constant "tweaking" to achieve desired results.
Level of Service: 90% - 95%
Another confusing Industry Guideline as "Level of Service" is simply "Overall Parts Fill Rate" and defined differently depending in the DMS used. Level of Service, or Overall Fill Rate simply means that we filled the request, minus any Lost Sales posted against it.
In other words, if we don't post any Lost Sales, our Level of Service, or Overall Fill Rate would be 100% and we would look like a hero. This above definition is easy to confirm as the Industry Guideline for Lost Sales Posting is 5% - 10%, which is the exact opposite of this Level of Service Guideline of 90% - 95%.
To me, the most important Parts Fill Rate is "First Time Off Shelf Fill Rate", which represents the percentage of time we fill these parts requests on first visit. This First Time Fill Rate must be calculated manually as the Dealer Management Systems will not provide this Fill Rate Percentage, except for CDK's "Sales from Stock Ratio".
Parts Expense to Gross: Personnel: Mid 30% Range
Depending on the Manufacturer, the Industry Guideline for the percentage of Parts Personnel Expense to Parts Gross is in the mid-30% range. This allows the Dealer and Parts Manager to determine the amount of personnel expense compared to the gross generated from Parts Sales.
Along with the Parts Sales & Parts Gross per Employee, these guidelines help us to maintain a healthy "bottom line" while having the right number of Parts Employees. It also helps us to determine if we are spending too much or not enough on our most valuable asset, which is our people.
There are only two ways to maintain Industry Guidelines in of these Expense Categories and that is to either reduce expense or increase gross profit. We have to be careful here in my opinion, as lowering expense in order to be profitable isn't always the answer.
Parts Expense to Gross: Semi - Fixed Expense: 13% - 15%
Again, depending on the Manufacturer, the Parts Semi-Fixed Expense should be in the mid-teen percentage range. They are called "Semi-Fixed" Expenses for a reason as even though they are always going to be there, we do have some control of these expenses, thus the name "Semi-Fixed".
Expenses in this category may include Freight Expense, Parts Policy, Training, Advertising, Office Supplies and Outside Services to name a few. Even though we may not be able to control all of these expenses, we need to be aware of them and challenge them every month.
Parts Fixed Expense to Gross: 12% - 14%
Again, the actual Fixed Expense to Gross Guideline depends on the Manufacturer, but they also call them "Fixed Expenses" for a reason. Fixed Expense in every dealership department needs to be "fair" in my opinion and not weighted to one department more than the other.
Fixed Expense should be calculated based on occupancy percentage compared to total dealership building and land usage. In other words, if the Parts Department occupies 40% of the building and land square footage, then the rent should also reflect that percentage.
Ultimately though, it's up to the dealer on how these Fixed Expenses are allocated. This also goes for building square footage on Heat, Power & Lights, Legal Expenses and Building Depreciation. Other Fixed Expenses such as Equipment Depreciation, Equipment Rental and Repairs to Equipment can be individualized by department.
Parts Gross Profit: Customer Pay: 40% - 42%
Even though this Industry Guideline is being pushed even higher, closer to 45%, we believe that the guideline is "fair" at 40% - 42%. There are many factors that can dictate what is available in different markets and demographics, but in the end, we think that this Industry Guideline is fair and achievable.
Proper use of the Cost-Plus Parts Matrix, Competitive Pricing on Parts Menu Items and Coupon Pricing needs to be reviewed at least a couple times a year. Parts prices go up often throughout the year, especially on "flat priced" parts and not updating these "out the door" prices often enough will just lead to lower gross amounts.
Parts Gross Profit: Warranty: 28% - 40%
Depending on if the Manufacturer allows the dealer to apply for a "Warranty Uplift" or not, this Industry Guideline can vary. There are still a few states that have not passed legislation to allow dealers to apply for a "Warranty Uplift" closer to, or even above the Customer Pay Parts Gross Profit Retention Percentage Guideline of 40% - 42%.
Much like applying for a Warranty Labor Rate Increase, applying for this Warranty Parts Increase requires comparing previous month's Parts Customer Pay Retention Percentages to determine the approved Parts "Warranty Uplift" Percentage.
Parts Gross Profit: Internal: 40% - 42%
There are still many dealers out there that still have their own reduced Internal Parts Pricing Policy. It is in our opinion that the Parts Internal Rate should be the same as the Customer Pay Parts Pricing Policy, whether MSRP, or Parts Matrix Price.
Having a reduced Internal Parts Pricing Policy only passes this discount onto the customer. Often times, the difference from the reduced Internal Parts Pricing Policy compared to average MSRP will only make a difference of less than $50.00 per Used Vehicle sold.
Parts Net Profit to Gross Profit: 35% - 40%
Lastly, and again, depending on the Manufacturer, the Parts Net Profit to Gross Percentage Industry Guideline is the highest of all dealership departments. Achieving this Industry Guideline requires a combination of a lot of the previous key elements.
It all starts with Parts Sales, then retaining the proper Gross Guidelines, and then finally, maintaining and managing all the Parts Expense Categories of Personnel, Semi-Fixed and Fixed Expenses.
I've always said that we may not be able to control where all of our sales come from, but we can manage what we keep on the gross side. We can also manage, to a great degree, our Parts Expenses if we are looking at them each and every month.
Being the "Best of the Best" in the Parts Department and especially if your dealer is a member of a 20 Group, whether NADA or NCM, we have all the resources to succeed in all of the Industry Guideline Categories.
In my opinion, there is no greater feeling than to achieve these high levels with the support of those in the same group. The resources in these groups are many and to be driven to these higher expectations by those who are there and have been there will lead to your own desire to be there as well!
If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :
(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...
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